Krugman seems to have come back to earth. His latest NY Times article is a lengthy discussion of how economists, by and large, got it wrong about seeing the impending financial collapse. Ironically, I’ve only got 6 hours of college economics, 3 of which I CLEP’d out of, and I saw it from a mile off.
The difference? I didn’t pretend to have a numerical approximation for everything. The history was obvious: economic bubbles pop. The dotcom bubble didnt’ properly pop, so wherever the money went from that would lead to a bigger bubble. Lucky us, it went to real estate, where all bubbles go to pop.
But the complete failure of the economic establishment to do the ONE THING they’re supposed to do really disturbs me. You see, economists are supposed to smooth out the business cycles. They are supposed to help us from rising too high and falling too low. Not one of the establishment wonks admitted things were going wrong because of their irrational belief in the complete rationality and efficiency of markets and their participants.
That’s the problem with economics. There’s too much belief in the numbers side and not enough recognition of the game theory side of things. Game theory is part of microeconomics: it should also be part of macroeconomics. Game theory shows how what may be rational choices for an individual can become irrational choices for groups. We just had a spate of irrational group choices and we’re headed for more.
My question is this: if they got it so wrong with the bubbles and the popping, how well-equipped are they to handle what’s up next? And why are they still in charge of things? Is the educational and monied elite that ensconced in our government?
I have a suggestion… how about we just go about disbelieving anyone in power? That way, we can make better plans for our future.